"No bank has ever failed because of capital ratios. Liquidity is the thing that kills you and Bank of America has more than $400 billion in cash and liquid assets- more than three times what it was in 2008 which was the last time we reached these price levels," Polini.

That's why he thinks the "JPMorgan takeover rumors couldn't be more absurd."

Bank of America stock price has been taking a beating day in and day out as questions remain about its capital position and its Coutrywide-related legal liabilities. The stock is down 54% this year and its market capitalization has dropped more than $70 billion.

The bank maintains that it won't have trouble meeting capital requriements under the new Basel III rules. CEO Brian Moynihan has said the bank will be well within capital requirements through selling non-core assets and normal earnings power--and not by raising new capital.

Some percentage of $80 billion of "second mortgages."Yves Smith thinks these should probably be written down by 60%, or $48 billion. You can pick your own number.

Some percentage of $182 billion in commercial real estate loans.* The "extend and pretend" game in commercial real-estate is even more pronounced than in residential real estate. So as Yves Smith observes, there's almost no chance those loans are actually worth $182 billion.

A healthy percentage of $78 billion of "goodwill."Bank of America built itself by acquisition. "Goodwill" is what's left over when management overpays for something. As Yves Smith observes, Bank of America's former CEO Ken Lewisloved overpaying for things. He overpaid for Countrywide, for example, which has since been written off to zero, and Merrill Lynch, which he could have had for free by waiting a couple more days.

Untold amounts of exposure to collapsing European banks and sovereign debt.*Yves Smith says Bank of America says its sovereign exposure is $17 billion. Really? Has the firm not written any credit default swaps protecting customers in the event that European banks or countries go belly up? Might the firm have to post some cash "collateral" to satisfy these contracts? That's what Lehman had to do, after all. And that's what made Lehman go from "having plenty of capital" to being broke overnight.

The post must have really irked folks at Bank of America because the bank responded with an unusual display of point-counter-point:

Mr. Blodget is making “exaggerated and unwarranted claims” which is what the SEC stated publicly when he was permanently banned from the securities industry in 2003. The sovereign exposure is off by a factor of 10. The commercial real estate figures are off by a factor of four. The mortgage analysis was provided by a hedge fund that has acknowledged it will benefit if our stock price declines. The blogger’s recommendations on goodwill accounting would be prohibited by generally acceptable accounting practices. Traditional bank valuation relies upon tangible book value per share, which excludes by definition 100 percent of goodwill and other intangibles. As of June 30, our tangible book value per share was $12.65.

Moynihan has said that the bank built rep and warranty liability reserves of over $18 billion. That's in addition to litigation and credit reserves.

CFO Bruce Thompson pointed out in a conference call with investors this month that the bank's exposure in Greece, Ireland, Italy, Portugal and Spain amounts to $16.7 billion. "Of that exposure, roughly $1.6 billion of it was to sovereign entities. And we had credit default protection on roughly $1.5 billion of that $1.6 billion of exposure," Thompson said.

He added in the call, "All of the non-loan books in those countries are mark-to-market every night, including the default protection that we have."

24/7 counters that point and says "US. Treasury would apparently work with other government agencies to have those rules suspended and then the new combined bank would sell assets to get back into compliance later."

Never say never.

Shares of BofA closed down 1.8% to $6.30 off a low of $6.03 for the day.